Hugh White

Last week the government decided to buy 58 F-35 fighter aircraft for $12.4 billion. When asked where the money would come from, the Prime Minister reassured us that it was already there. “It's money which successive governments have carefully put aside to ensure that our nation's defences are strong,” he said.

This suggests that Tony Abbott believes there is a special savings account somewhere – almost like a piggy bank – into which successive governments have been dutifully depositing money for years. We just have to break it open to find the cash to buy our new fighters.

One wonders whether the Abbott government is really willing for Defence spending to grow so fast when it is cutting so hard everywhere else.

Abbott was happy to share the credit with Labor for such far-sighted thriftiness. “The way successive governments to their credit have tried to do these things is … to start putting the money aside now for the major purchases that you need in the future to keep your defence forces effective and operational.”

Alas this is not true. There is no piggy bank. Instead there is just a plan. Ever since 2000 the government has been planning to spend a lot of money on new fighters, but plans are not hard cash. The money itself will still have to be found in each budget as the bills for the F-35 come in, year by year, over the next decade.

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And that is not going to be easy, because successive governments have been planning to buy a lot of other military capabilities as well, and the total cost of all the things they plan to buy far exceeds the amount of money they plan to spend. After Labor’s last budget in 2013, Mark Thomson of ASPI calculated that the gap between the two sides of the Defence plan – between what they plan to buy and what they plan to spend – was more than $30 billion.

That happened because both Rudd and Gillard cut the defence budget but couldn’t bring themselves to make matching cuts to their shopping lists, for fear of looking weak on Defence.

The Coalition government has thus not inherited from Labor a nice full piggy bank, but a funding shortfall of over $3 billion per year. Tony Abbott’s kind words last week about Labor’s defence legacy suggest he does not yet understand this. And that means he has not begun to grasp the challenge his government faces in preparing the new white paper on Defence that it has promised to deliver in less than a year.

Ministers will need to make many tough choices if the white paper is to provide a realistic basis for our long-term defence policy. But even if it fails every other test, the one question the white paper must answer is how to close this huge gap between the plans and the budget over the next decade.

So it must choose between cutting some of the planned capabilities or spending more on defence. Abbott has promised to increase the defence budget, setting a target of 2 per cent of GDP by 2024. That would be enough to cover all the current plans, but defence spending would have to grow at almost 5 per cent in real terms every year for a decade.

This would be unprecedented in peacetime. For example it is much faster than when the Howard government grew defence spending from 2000-2007, when fiscal and economic conditions were much rosier and the ADF was heavily committed to the war on terror. One wonders whether the Abbott government is really willing for Defence spending to grow so fast when it is cutting so hard everywhere else.

If not, then big savings will have to be found. And though efficiency campaigns and personnel cuts can deliver small savings, big savings only come from cutting big investment projects.

That puts the spotlight on four big new capabilities planned for the next decade. They are the new submarines, a new class of warships, a new fleet of armoured fighting vehicles for Army, and the F-35s. Without massive defence budget increases, at least one of these projects will need to be scrapped or drastically scaled back if the government is to produce a financially credible defence policy.

And now the government has committed itself to a big fleet of F-35s, so that is off the table. I do not think that decision is in itself a mistake. The F-35 has its problems, but on balance it is the best bet for Australia’s future air combat and strike capability, and that capability will be very important in the decades ahead.

However that means the big cuts have to come from among the other three. Which of them takes the chop will have big strategic implications for the kinds of wars we are able in future to fight, so in choosing which to cut the government must think carefully about Australia’s future strategic environment and objectives.

Tony Abbott cannot responsibly decide which forces to buy and which projects to chop without looking around the corner as best he can. He must make some decisions about what we might want our armed forces to be able to do, and what kinds of forces can best do them. And he has to look far ahead, because the choices he makes now will determine the capabilities Australia has in 30 years' time.

In the mid-2040s, will we need forces that can fight alongside America, or on our own? Against small players or major powers? To defend our own territory or other countries? At sea or on land? These questions are hard to answer, but not impossible. Good defence policy means answering them as clearly as you can.

Hugh White is an Age columnist and professor of strategic studies at the Strategic and Defence Studies Centre, ANU.